JOHANNESBURG - Non-Muslims in South Africa are turning to Islamic finance to guarantee investing their money in fields that are not negative for society, such as alcohol, tobacco and gambling.
"Many non-Muslims choose Islamic banking products because they like knowing that their funds will never be invested in industries that are potentially negative for society, such as alcohol, tobacco, gambling and pornography, Arrie Rautenbach, head of retail markets at Absa bank, told Business Live.
Trying to get a share of the booming Islamic banking industry, several South African banks are offering Shari`ah-compliant services, such as the First National Bank and ABSA bank.
The South African National Treasury has also announced plans to introduce Islamic bonds as part of efforts to get a share of the booming industry.
Over the past few months, the number of South Africans using Shari`ah-complaint banking products has remarkably increased to exceed 100,000 citizens.
The new Shari`ah-compliant services are available to all customers, regardless of their religion.
"Any company - small, medium or large - that chooses an alternative to conventional banking can make use of the Islamic business bank offering," said Rautenbach.
"During June the Islamic Forward Exchange Contract [FEC] from Absa Capital will be launched to support international trade by Islamic banking customers. Support for companies wishing to do international business is a current focus and products in the pipeline include a unique working capital solution and letters of credit, which will be Shari`ah-compliant."
Islam forbids Muslims from usury, receiving or paying interest on loans.
Transactions by Islamic banks must be backed by real assets -- not shady repackaged subprime mortgages and banks cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Choosing Islamic banking products, many customers found stability in Islamic investments, a known win-win for bank and customer.
"The structure of Islamic finance products is gaining rapid acceptance as a viable alternative to traditional Western banking, said Eric Enslin, head of client engagement at FNB Wealth.
This is because the sale and buy-back agreement between the financier and the customer is agreed when the partnership is entered into. The terms of the sale and the profit margin are fixed."
With Shari`ah-compliant products, profit comes exclusively from the nature of the agreement.
"Shari`ah banking is consistent with the principles of Islamic rulings and their practical application' Enslin said.
"There are a number of ways trade contracts can be set up, such as rental with a view to ownership, cost plus mark-up, and more.
"An example of a rental agreement could be the financing partner [the bank] purchasing the asset on the client's behalf and renting the goods to the customer at a fixed rental repayment price over an agreed period. The rental amount would include the bank's profit mark-up that is agreed at the inception of the sale. The agreed repayments are not subject to any fluctuations, irrespective of market conditions."
Starting almost three decades ago, the Shari`ah-compliant system is now being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are already operating Islamic banking business.Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets amounting to $1.6 trillion (1.2 trillion euros).
Reproduced with permission from OnIslam.net